2024 Kansas Tax Reform
$2 Billion in Tax Savings Over Five Years
Key Takeaways:
- Senate Bill 1 represents a comprehensive overhaul of Kansas’s tax system, providing broad-based relief to individuals, families, retirees and financial institutions.
- One of the most notable changes is the alteration of Kansas’s income tax structure.
- This legislation is poised to deliver approximately $2 billion in tax savings over the next five years.
In an effort to bring sustainable and comprehensive tax relief to Kansans, Governor Laura Kelly called a special session of the state legislature that began on June 18, 2024. The session concluded with the passage of Senate Bill 1 (SB 1), which the governor signed into law on June 21, 2024.
This legislation is poised to deliver approximately $2 billion in tax savings over the next five years and introduces several significant changes to the state’s tax code. Here’s a detailed breakdown of what the new law entails and how it may impact you.
A Shift in Income Tax Brackets
One of the most notable changes is the alteration of Kansas’s income tax structure. The state will transition from a three-bracket system to a two-bracket system. This simplification not only streamlines the tax process but also lowers the top income tax rate from 5.7% to 5.58%. While the reduction might seem modest, it reflects a broader effort to make Kansas more tax-friendly and competitive.
Social Security Benefits Tax Exemption
Starting in 2024, all Social Security benefits will be tax-exempt in Kansas, benefiting many retirees. This exemption provides substantial relief to seniors who rely on Social Security as a primary source of income, ensuring they keep more of their benefits.
Increased Standard Deductions
The new law also increases the standard deduction amounts, giving taxpayers more significant deductions right off the bat. For single filers, the deduction will rise from $3,500 to $3,605. Married couples filing jointly will see their deduction increase from $8,000 to $8,240, while heads of household will have their deduction boosted from $6,000 to $6,180. These increases aim to reduce taxable income and lower the overall tax burden for Kansans.
Enhanced Personal Exemption Allowance
A substantial change comes with the personal exemption allowance, which jumps from $2,250 per person to $9,160 per taxpayer, along with an additional $2,320 for each dependent. This significant increase is designed to provide more substantial relief for families, making it easier for them to manage living costs.
Residential Property Tax Relief
Homeowners will also benefit from SB 1. The first $75,000 of appraised value for residential property will now be exempt from the school finance levy. This change is intended to alleviate some of the property tax burdens on homeowners, providing financial relief and promoting homeownership within the state.
Reduced Privilege Tax Rates for Financial Institutions
Banks, savings and loans and other financial institutions in Kansas will see a decrease in their privilege tax rates. This reduction is expected to boost the financial sector, fostering growth and stability within the industry.
Increased Credit for Household & Dependent Care Expenses
For families with dependents, the Kansas credit for household and dependent care expenses will increase from 25% to 50% of the federally allowed amount. This change aims to support working families by reducing the financial strain associated with dependent care.
Prohibition of 1031 Exchange Sale Prices as Fair Market Value Indicators
Finally, SB 1 includes a provision that prohibits the use of sale prices from 1031 exchanges as indicators of fair market value for tax appraisal purposes. This measure ensures that tax appraisals remain fair and accurate, reflecting true market conditions rather than potentially inflated exchange values.
Conclusion
Senate Bill 1 represents a comprehensive overhaul of Kansas’s tax system, providing broad-based relief to individuals, families, retirees and financial institutions. As these changes take effect on Jan. 1, 2024, Kansans can look forward to a more favorable tax environment that supports economic growth and eases the financial burdens on its residents.
For personalized advice on how these changes may affect your financial situation, contact an Adams Brown tax advisor. Our team is here to help you navigate these new regulations and optimize your tax strategy.